Monday, November 28, 2011

BuilderBytes' MetroIntelligence Economic Update for 11/28/2011

Please click here to see the edition of BuilderBytes for 11/28/2011 on the Web.

In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

  • Consumer confidence rises to highest level in five months
  • Durable good orders decrease for the second consecutive month, largely from fewer commercial aircraft orders
  • Personal income rises less than expected as savings rates increase
  • Initial unemployment claims rise slightly more than expected
  • Mortgage applications dip by 1.2% in latest survey
    Want to advertise in the newsletter and reach over 100,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

    Want to make sure your company or event is included in the events calendar? Contact editor Dani Smith at dsmith@penpubinc.com.

    Wednesday, November 23, 2011

    BuilderBytes' MetroIntelligence Economic Update for 11/23/2011

    Please click here to see the edition of BuilderBytes for 11/23/2011 on the Web. Because of the Thanksgiving holiday, for this issue it's being published on Wednesday instead of Thursday.

    In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

    • October sales of existing homes rise, unsold inventory continues to decline
    • Third quarter 2011 GDP revised from 2.5% to 2.05%
    • Additional easing discussed at last federal reserve meeting
    Want to advertise in the newsletter and reach over 100,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

    Want to make sure your company or event is included in the events calendar? Contact editor Dani Smith at dsmith@penpubinc.com.

    Monday, November 21, 2011

    BuilderBytes' MetroIntelligence Economic Update for 11/21/2011

    Please click here to see the edition of BuilderBytes for 11/21/2011 on the Web.

    In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

    • Both Building Permits and Housing Starts Showing Signs of Life in October
    • Leading Indicator Index Rebound Suggests Lower Risk of Economic Downturn
    • Initial Unemployment Claims Continue to Fall
    • Philadelphia Federal Reserve Survey for November Shows Slowing Growth for its Region
    Want to advertise in the newsletter and reach over 100,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

    Want to make sure your company or event is included in the events calendar? Contact editor Dani Smith at dsmith@penpubinc.com.

    Thursday, November 17, 2011

    BuilderBytes' MetroIntelligence Economic Update for 11/17/2011

    Please click here to see the edition of BuilderBytes for 11/17/2011 on the Web.

    In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

    • Builder confidence rises to highest level since May of 2010
    • October retail sales rise more than expected based on strength in sales of cars & electronics
    • Producer price index falls more than expected in October
    • Empire State Manufacturing Survey rebounds after five months of consecutive losses
    • Business inventories for September remain flat as sales rise
    • Consumer price index falls unexpectedly in October
    • Industrial production rises more than forecast
    • Mortgage applications decline, led by fewer refinancings
    Want to advertise in the newsletter and reach over 100,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

    Want to make sure your company or event is included in the events calendar? Contact editor Dani Smith at dsmith@penpubinc.com.

    2011 in Review: A Rebound Delayed is Not a Rebound Denied

    In 2011, a not-so-funny thing happened on the way to the rebound: it was delayed. Whether due to poor consumer confidence, tighter credit standards, high unemployment, delayed foreclosures or some combination of the above, it’s become clear that millions of potential households have delayed the move to their own, private abodes until the economy -- and their aspirations -- improve. But both things are actually getting better – albeit very slowly.

    About a year ago, I wrote about how this doubling up with friends or relatives had actually meant that the country was technically under-housed to the tune of well over 3 million households. Given continued population growth, that is even more true now, but with the unusually slow rebound from the Great Recession, builders and developers have had to exercise yet more patience while shepherding future projects along.

    However, aside from continued troubling signs from Europe, the economic news is gradually beginning to improve. For example, U.S. GDP, which squeaked along at 0.4% and 1.3% in the first and second quarters of 2011, respectively, accelerated to 2.0% by the third quarter. Retail sales are up, led mostly by gains in cars and electronics. Both business sales and industrial production are rising, and the consumer price index recently declined, suggesting that inflation is being kept in check.

    From the point of view of the building community, sentiment is beginning to improve after multiple months of treading water, with the NAHB/Wells Fargo Housing Market Index rising to 20 in November, or the highest level noted since May of 2010. In addition, the national Housing Opportunity Index (which measures housing affordability) has been consistently rating above the 70% mark since the beginning of 2009. According to the Improving Market Index, 30 metro areas made the list for November as the homeownership rate reversed months of decline to rebound slightly to 66.1%, and housing prices seem to have stabilized in most places.

    Even building permits, which had struggled throughout most of 2011 to match 2010 levels, are finally rising, although that’s mostly due to the year-to-date performance of the multi-family sector (+32%) versus declines for single-family permits (-8.4%). Still, October’s permits were the highest since December 2010 for single-family homes and October 2008 for multi-family units.

    Nonetheless, there remain considerable headwinds weighing on the nation’s housing market. The economy is simply not where it should be at this stage of the business cycle, which has meant continued weakness in the job market. Both pending home sales and the remodeling market continue to struggle, and annualized new home sales remain stuck at about 300,000 units with an inventory timeline of just over six months. Annualized sales of existing homes continue to hover close to the five-million-unit level with an inventory timeline of about 8.5 months

    Moreover, looking towards the long term, there is a concern that the weakness in the housing market over the past few years will have a larger impact on household formations, due mostly to both marriages and new births being delayed by those in their 20s and 30s. Indeed, up to two million such households which would otherwise be looking for their own homes have had to postpone those plans due to economic or social duress.

    And of course a lower birth rate could certainly put additional pressure on long-term safety nets such as Social Security and Medicare, which require a robust tax base to meet promised obligations. But hopefully that’s a problem which will be more than reversed as the nation’s builders eventually gear up to address the pent-up demand silently but steadily building up nationwide.

    Thursday, November 10, 2011

    BuilderBytes' MetroIntelligence Economic Update for 11/10/2011

    Please click here to see the edition of BuilderBytes for 11/10/2011 on the Web.

    In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

    • Mortgage applications rise by 10.3% over previous week; Purchase Index rises to highest level since August 2011
    • Consumer credit increased b $7.5 billion in September
    • Monthly wholesale sales in September up by 15% year-over-year as inventories slowly decline
    Want to advertise in the newsletter and reach over 100,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

    Want to make sure your company or event is included in the events calendar? Contact editor Dani Smith at dsmith@penpubinc.com.

    Monday, November 7, 2011

    November column for Builder & Developer magazine now online

    My column for the November 2011 issue of Builder & Developer magazine is now posted online.

    For this issue, entitled "Beware the Politics of Economics" I wanted to discuss how the politicization of economics can end up shielding voters from the important issues they should be considering. Since we'll be seeing a lot of politically charged rhetoric over the next year regarding the economy, it's more crucial than ever to recognize what got us to the situation we're in -- and the best ways we can escape it. Hint: neither major party has yet addressed these solutions.

    An excerpt:

    ...What we should demand from our elected government is the truth about our strengths and weaknesses in a global world. Our strengths remain solid, including a younger, less-taxed population versus other developed countries, a more innovative economy and the dollar as the global reserve currency.

    But our weaknesses remain formidable, including a two-party system which discourages compromise, self-absorbed seniors who have no problem forcing younger generations to pay for now-outdated retirement plans, income inequality which hinders growth, an education system which can’t seem to churn out globally competitive students and a crumbling infrastructure whose price tag is apparently too high to seriously debate, much less repair...

    To read the entire column, click here.

    To read the entire November 2011 issue in digital format, click here.

    BuilderBytes' MetroIntelligence Economic Update for 11/07/2011

    Please click here to see the edition of BuilderBytes for 11/07/2011 on the Web.

    In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

    • 80,000 Jobs Added in September as Average Hourly Earnings Rise by 0.2%
    • Initial Claims for Unemployment Fall Below 400,000
    • Productivity Rises by 3.1% as Unit Labor Costs Fall by 2.4% in 3Q2011
    • Factory Orders Rise by 0.3% in September, Led by Big Jump in Business Investment
    • Service Sector Economy Still Growing, Albeit Slowly
    Want to advertise in the newsletter and reach over 100,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

    Want to make sure your company or event is included in the events calendar? Contact editor Dani Smith at dsmith@penpubinc.com.

    Saturday, November 5, 2011

    L.A. Times reviews Lennar's new NextGen series

    In today's Los Angeles Times, reporter Alejandro Lazo covered the extended family homes Lennar is building in San Bernardino and in Arizona. He had also called me to comment for the article, and I told him about the casitas that become very popular for larger new homes prior to and during the run-up to the building boom. From the story:

    The company has built two San Bernardino County models of its so-called NextGen designs for its master-planned Rosena Ranch community. Like a Russian nesting doll with a smaller doll inside, the new residential design incorporates a smaller home with a separate front entrance, kitchenette, bathroom and bedroom...

    For now, it seems to me that there are certain ethnic groups which have a history of inter-generational living (such as Hispanics and Asians), but he didn't delve much into that, preferring instead to focus on the economics of doubling up but with the advantage of private spaces.

    I think it definitely shows that some builders are serious about innovating in ways to compete with their recent plans of the past as well as deeply discounted foreclosures:

    "Here is a clever way of addressing something that wasn't built during the boom years," said Patrick Duffy, principal for research firm MetroIntelligence Real Estate Advisors. The main question builders are asking themselves, he said, is: "How do you make it special, not only against foreclosures, but a cheaper home that they themselves built only a few years ago?"

    Click here to read the entire story.

    Friday, November 4, 2011

    2011 Riverside-San Bern. Economic Conference Commercial Real Estate Section Now Online

    LinkMiss the 2011 Beacon Economics Riverside-San Bernardino Economic Forecast Conference on Thursday, November 3rd at the Riverside Convention Center?

    You can still download the section on commercial real estate by clicking here or on the book cover to the left.

    As in the past this section was authored by me and MetroIntelligence.

    Here are the key points from that chapter:

    • Although vacancy increases for office space are now leveling off and little new supply is expected to add to the inventory overhang, the office sector in the Riverside-San Bernardino region will still take time to recover; look for vacancies to range from 19.0% to 19.5% and rent growth to remain under pressure for at least another year.
    • As in the office sector, vacancies in the retail sector have peaked and should begin to inch down as the economy recovers and very little supply is added; look for economic vacancies to fall by 20 basis points by the end of 2011; positive rent growth will be delayed until the end of next year.
    • After nearly tripling between 2006 and 2009, vacancy rates for the region’s industrial/warehouse sector have fallen for six consecutive quarters to below 8%, largely on the strength of tenants demanding big-box buildings; look for vacancies to continue trending toward 6.0% as rent growth ranges for the most part between 1.5% and 2.0% per quarter.
    • Based on commercial building permit values, many building owners are investing in additions or alterations to existing properties; for new development, during the second quarter of 2011, there were declines in building permits for all commercial sectors from the previous quarter.
    • With interest rates for 10-year U.S. Treasury bonds recently hovering close to 2%, cap rates during the second quarter of 2011 for all commercial property sectors look quite competitive by comparison, ranging from 7.26% for industrial/warehouse properties to 8.75% for retail space and 9.57% for the office sector.

    2011 Riverside-San Bern. Economic Conference Residential Real Estate Section Now Online

    Miss the 2011 Beacon Economics Riverside-San Bernardino Economic Forecast Conference on Thursday, November 3rd at the Riverside Convention Center?

    Fear not -- you can still download the section on residential real estate by clicking here or on the book cover to the left.

    As in the past this section was authored by me and MetroIntelligence.

    Here are the key points from that chapter:

    • Falling home prices in the Riverside/San Bernardino region have dramatically increased home affordability, with 72% of households able to buy the median-priced home at current interest rates, up from the single digit percentages seen as recently as the fourth quarter of 2007.
    • The new home market in the Riverside/San Bernardino region has been decimated, with sales falling by 90% between the first quarter of 2006 and the second quarter of 2011. After falling by 37% between mid-2006 and early 2009, since then prices have ranged mostly between $270,000 and $285,000.
    • Although existing single-family home sales did stage a strong rebound after the end of 2007 due to various tax credit programs, since these programs expired, sales fell back to about 14,400 by the second quarter of 2011.Prices, after reaching a trough in the second quarter of 2009, rallied through the second quarter of 2010 but during the second quarter of 2011 fell back down to just under $174,000.
    • Sales of condominiums, which started to fall in 2004 as prices began to freeze out traditional first-time buyers, rebounded by 85% between the third quarter of 2007 and the second quarter of 2011 to over 1,600 units. Prices, which fell by 63% from peak to trough by the third quarter of 2009, have since risen by nearly 18% to $142,947.
    • Although the combination of a shadow rental supply, a soft economy, and high unemployment will continue to affect the local apartment market, it is gradually returning to health.Vacancy rates have begun to fall, and should dip below 6.0% in 2012. Average asking rents are also rising slowly, averaging $1,064 by the second quarter of 2011 and could rise by 1.0% or more per quarter by the middle of 2012.
    • Following a nearly year-long drop in foreclosure activity, a 26% increase in default activity between the second and third quarters of 2011 in the region will likely mean a similar increase in foreclosures over the next nine to twelve months.A new wave of REO homes could certainly have an impact on prices for existing homes.
    • Permits for single-family homes remain depressed in the region, totaling just over 1,100 homes for the two-county region by the second quarter of 2011, but should start to slowly rise by the end of 2011 and even climb past 3,000 units by the last quarter of 2015.
    • Permits for multi-family homes fell to just 256 units during the second quarter of 2011, but should now start rising gradually as builders re-enter the market to meet pent-up apartment demand.By the end of 2015, multi-family permits could reach 2,000 units per quarter.

    2011 Riverside-San Bern. Conference Materials Now Online

    Miss the 2011 Beacon Economics Riverside-San Bernardino Economic Forecast Conference on Thursday, November 3rd at the Riverside Convention Center?Link
    Fear not -- you can still download the conference book as a .pdf for free by clicking here.

    As in the past, the sections on the residential and commercial real estate markets were authored by me and MetroIntelligence, so I welcome your comments and suggestions!

    Also, if you'd like to view the presentation by Beacon founding partner and economist Christopher Thornberg on the state of the national and state economy, click here.

    If you'd like to view the presentation by Brad Kemp, Beacon's Director of Regional Research, which focused on the Riverside-San Bernardino area -- including forecasts for employment, building permits and housing prices -- click here.

    Thursday, November 3, 2011

    Notes from the ULI Fall Meeting #4

    During the 2011 ULI Fall Meeting in Los Angeles, Mike Milken (yes, that Mike Milken) gave a very well-attended keynote luncheon speech that was being talked about a lot the rest of the day. Milken, who chairs the think tank Milken Institute in Santa Monica, CA, gave a speech entitled, "Where's Sputnik?" which will also be the title of a forthcoming book.

    The general idea is that after the USSR launched the Sputnik satellite into orbit in 1957, it sent many Americans into a psychological panic -- not because of the satellite itself, but because the missile which launched it into space could easily be converted into carrying nuclear-tipped weapons aimed at the United States. However, it also ushered into a period of technological innovation and investments in education that helped to send the country's astronauts to the moon. As a new President Kennedy said in his inaugural speech, "We shall pay any price, bear any burden, meet any hardship ... to assure the survival and the success of liberty.”

    Today, although the country faces formidable challenges, if recent history is any indication, there has been not any "Sputnik" moment to restore our previous ambitions. According to the report: In 2005, a distinguished committee of leaders from industry, government and higher education produced a disturbing report, Rising Above the Gathering Storm, that spelled out ways to restore America’s competitiveness. Revisiting their report in 2010, the committee concluded that “the outlook for America to compete for quality jobs has further deteriorated over the past five years. The gathering storm increasingly appears to be a Category 5.”

    And yet Milken is still an optimist. Offering a comprehensive program for national renewal, Milken's speech (and book) will focus on six challenges – energy, housing, entitlements, education, health and immigration. Milken believes the “American Century” does not have to end, but can be extended long into the future if the public and private sectors, and all of us as individuals, assume greater responsibility for our common destiny.

    But you don't have to wait for the book -- you can read his 24-page article on the subject (adapted from his book) by clicking here.

    BuilderBytes' MetroIntelligence Economic Update for 11/03/2011

    Please click here to see the edition of BuilderBytes for 11/03/2011 on the Web. In this issue of the MetroIntelligence Economic Update, I covered the following indicators:

    • Federal Reserve Holds Rates Steady Amid Improving Economic Outlook
    • Construction Spending up Slightly in September
    • Economy Continues to Grow, Albeit More Slowly
    • Manufacturing Sector Activity Expands for 27th Consecutive Month
    • Bank and Military Cutbacks Increase Planned Job Reductions in September
    • Private Sector Employment Rises by 110,000 Jobs in September
    • Mortgage Applications Tick up by 0.2% From Previous Week
    Want to advertise in the newsletter and reach over 100,000 readers? Contact National Sales Manager Nick Cosan at nkosan@penpubinc.com.

    Want to make sure your company or event is included in the events calendar? Contact editor Dani Smith at dsmith@penpubinc.com.

    Wednesday, November 2, 2011

    Notes from the ULI Fall Meeting #3

    At the 2012 Fall Meeting here in Los Angeles, the Urban Land Institute released a report entitled "Real Estate in the New Economy," which discusses how ongoing changes in globalization, demographics and technologies will impact land use in the years ahead.

    You can download the entire report as a .pdf file by clicking here.

    From the press release:

    The introduction to the 21st century is still unfolding in cities and communities around the world. The complexity of the Great Recession continues to challenge all market players with implications that ripple out across countries, industries, currencies, and communities. From reconstruction dilemmas following natural disasters to civil unrest, political friction, and the heart-stopping ravages of the latest famine, we feel a world getting smaller yet more complicated and interdependent than ever before.

    After decades of what felt like infinite resources and vast wealth pools available to fuel the consumption-based U.S. economy, we now face a mindset of shortage. We all know the history—government-supported mortgages and freeways, affordable automobiles, cheap gas, and post–World War II industrial expansion all underwrote the exodus from “cramped” urban neighborhoods to spacious single-family suburban homes.

    Car models were a talisman for individual success, and public transit turned into an afterthought in suburban agglomerations. Proximity to anything didn’t matter when you could drive easily to almost everywhere. And exhilarating mobility over long distances enabled more people to own more land—and build larger houses—at the ever-expanding suburban fringe.b Employers sought to build suburban office islands, set apart from housing, retail, and transit.

    As we preview the future, three critical forces drive change:

    Accelerating Globalization—From energy to food to manufacturing, the metrics of globalization shed light on the rise and fall of global markets on a 24/7 basis as cities around the world ebb and flow with massive capital investments and withdrawals. Burgeoning and shrinking cities mirror investors’ search for lower costs of production and optimum locations for both manufacturing and services. Our social networks and governance structures struggle to keep pace and adapt quickly and creatively to process all of the input that various interests want and need to give. Disparities between rich and poor expand, uncertainty and lack of confidence grow, and prognosticators hyperventilate with fears of the future.

    Changing Demographics—The rapidly evolving social composition of communities has a more powerful reach and not only reframes a neighborhood or a state but also triggers new markets, new opportunities, and new products and services. Immigration produces not just a plethora of diverse restaurants in virtually every town and suburb, but also new residents vying for jobs, housing, and a toehold on the ladder of success. The “barbell” population groups of the Boomers and Generation Y challenge the markets, from where and how we live and work, to how we learn, heal, and relax.

    Ever-Evolving Technologies—Technology is pushing more information into the marketplace and onto our smartphones at warp speed. We can monitor and manage our activities, our navigation, and every value proposition with ever more accuracy and in real time. The community-building potential of communications technology is on a meteoric catapult across the globe, replacing entire industries along the way. Whether to detect underperforming heating, ventilation, and air-conditioning equipment, monitor the arrival of the next bus, or catalyze political engagement, communities and businesses are exploring the power of instant connectivity for good or ill.

    These underlying forces will combine with many others in indeterminate ways over the coming years. In the world of real estate investment, the continual challenge is to understand new trends, capitalize on new market opportunities, and direct investment funds in strategic ways. No time in recent memory has been as complex or as subject to detailed analysis as our current time—or changing as rapidly...

    Click here to download the entire report as a .pdf file.

    Notes from the ULI Fall Meeting #2

    At the 2011 ULI Fall Meeting here in Los Angeles, the Urban Land Institute released its annual edition of "Emerging Trends in Real Estate" for 2012. You can download the entire report as a .pdf by clicking here.

    From the press release:

    For 2012, U.S. real estate players must resign themselves to a slowing, grind-it-out economic recovery following a period of mostly sporadic growth, confined largely to a few real estate markets that offer the primary 24-hour transportation hubs with global access, according to respondents of the Emerging Trends in Real Estate® 2012 report, released today by PwC US and the Urban Land Institute (ULI).

    According to survey respondents, enduring ec
    onomic doldrums and the absence of dynamic jobs generators are weighing on real estate markets. The hard reality is businesses have learned they can increase profits with less space – while people can’t afford bigger living spaces.

    While the nation’s lackluster employment outlook delays filling office space, the related drag in consumer spending compromises growth in retail and industrial occupancies and rents.
    “Job creation is clearly the critical in
    gredient for a sustained recovery in commercial real estate and the market participants we surveyed uniformly struggled to identify new employment engines.

    As a result, businesses are focused on squeezing profitability out of productivity gains, and families forced into belt-tightening are using less square footage, which follows ‘The Era of Less’ sentiment we forecast last year,” said Mitch Roschelle, partner, U.S. real estate advisory practice leader, PwC. “In 2012, investors expect pricing to level off in the top markets – and overall ‘buy’ sentiment will subside, selling appetites will increase, and more owners will hold until the economy untracks. This is part of 'the new normal' as investors are coming to grips that they may not be selling for more than they paid.”


    Survey participants predict that 2012 will see an increased supply of properties for sale; however, due to economic uncertainty, interest among buyers may diminish...

    To read the entire press release, click here.

    To download the entire report in .pdf format, click here.

    Construction Spending up Slightly in September

    The U.S. Census Bureau of the Department of Commerce announced today that construction spending during September 2011 was estimated at a seasonally adjusted annual rate of $787.2 billion, 0.2 percent above the revised August estimate of $786.0 billion. The September figure is 1.3 percent below the September 2010 estimate of $797.3 billion. During the first 9 months of this year, construction spending amounted to $580.9 billion, 3.5 percent below the $602.0 billion for the same period in 2010.

    Click here for entire press release.

    Federal Reserve projects slower-growing economy

    From the latest statement courtesy of the Federal Reserve:

    Information received since the Federal Open Market Committee met in September indicates that economic growth strengthened somewhat in the third quarter, reflecting in part a reversal of the temporary factors that had weighed on growth earlier in the year.

    Nonetheless, recent indicators point to continuing weakness in overall labor market conditions, and the unemployment rate remains elevated. Household spending has increased at a somewhat faster pace in recent months.


    Business investment in equipment and software has continued to expand, but investment in nonresidential structures is still weak, and the housing sector remains depressed. Inflation appears to have moderated since earlier in the year as prices of energy and some commodities have declined from their peaks. Longer-term inflation expectations have remained stable...

    Click here for full statement.